My Movie (part 1)

Leo, host of the podcast "Startup Doctor," faces challenges with organizational structure in his scale-up. Leo seeks help from Signe, a professor in organizations, and Charlie, a seasoned COO. They discuss the need for clearer ownership, written processes, and possible solutions to Leo's issues. The conversation delves into the concept of bureaucracy, the evolution of organizations, and different approaches to managing company structure. Examples like Bridgewater Associates' radical transparency shed light on alternative methods. Leo learns that his struggles are common in the growth phase of a company and that structure may be necessary for success. And Melody, just so you know, good luck editing. We'll try to do it with as little breaks as possible. If there's something happening and there's a break, Signe will be the one to identify it for you and wave and smile and do all those stuff and do the claps. So look for her in this and let us know if you need some help at some point. And if you have some questions. With that said, I think, are we all ready to just get started? Yes. All right. And by the way, Melody, we are not putting any of these fancy jingles or anything in it. You can do that because we don't know when it's going to fit and stuff like that. All up to you. Yes. All right. Okay. Welcome to another episode of the Startup Doctor. This episode this week is called Growing Pains. And it's a little bit of a special episode this week. And for those who don't know, I'm sorry, by the way, my name is Leo and I'm a startup founder and now I guess a scale-up founder as well. That's my current situation. And I host this podcast. Usually the format is that I have a guest in and I invite some competent experts to help me figure out what this founder needs and helps with in terms of theory, in terms of practice. But this week, as I said, it's a little different. This week I am the guest and the host. So let's see how that's going to work. But long story short, I need help with organizational structure and issues and implementing that in my scale-up. And for that, I have invited two people that I trust very much that has been consultants previously for me when I was in an early phase startup, helped me to some very, very important hiring decisions. That has been key for now. Thank you for seeing what I couldn't see back then. But I think before I get into the case and what I need help with, a quick introduction from both of you I think is in order. Yeah, so thank you so much for having us on this podcast. My name is Signe and I'm a professor at CBS. I am a professor in organizations and management, organizational theory. And yeah. Yeah, thank you, Signe. Thank you, Leo, for having us here. Yeah, I'm Charlie. I left Peak Meta to go work for two Nordic scale-ups as a COO. And yeah, I think I'm pretty seasoned now that I'm back in the consulting business to help you with some hands-on experience in the organizational topic. I think that was what made it so interesting for me that we have these two aspects. It's interesting enough, all of Peak Meta has gone out and made their own startups and have success in the academic world. So the company doesn't exist anymore, but you still have your expertise from back then. So we have the researcher and the theorist, and we have a little bit more hands-on and practical as we always have at this show. But to set the stage, first of all, it's a little surreal to be back here and talk about my company with you. Short version, we made it out of the early phase. We grew into something real. The product became a platform. Revenue was up. We're all happy, right? But as you know from back then, and some of the listeners might know, I have a distinct distaste for bureaucracy. I have a distinct distaste for not structure. It's not structure that I don't like, but it's the bureaucracy and the micromanagement, right? I have some bad experiences myself. So we touched upon that back in the day, but I didn't implement it enough, and I feel the issues for that right now. Yeah, let's just get down to business here, Leo. I mean you have a very successful scale-up, and it looks very good from the outside, I think. Maybe let's get down to the problem that you have in mind. Yeah, I think I hustled through this, and we made it work. We implemented some structure, but only to a certain point. And the thing is now, a meeting that used to take 20 minutes, take an hour, we don't resolve anything, to build the latest and biggest fog up and the biggest waste of money we've ever made is that we had two teams built the same feature for the platform at once, right? So there is clearly some structure, some information flows that aren't working as intended. Yeah, someone brings me a decision that should have been made three levels below me. I push it back down. It takes two weeks. It's the classic story as far as I know, but I have a hard time handling it. Yeah, I think I'm getting down the problem a little bit more. Maybe you already probably have tried something, have some solutions in your head. What would be your approach to this? I think my approach is like I already know sort of what the obvious answer is, but I don't know how to implement it. I think that's why I invited you guys. It's more structure. I think we need clearer ownership. I think we need maybe some written processes. I don't like it that much, but we will. I can read a management book. I'm not saying that to be funny, but I think I should. Yeah, but I've tried this before, and every time I get to this point, I flinch, right? I get cold feet. I bag out. It's not interesting to me. I don't feel it, so I think that's the issue. Well, maybe I can jump in here. Leo, what you're describing is not exactly like a failure. It's more of a transition. There's a paper from 1972 by Larry Greiner, which is called Evolution and Revolution as Organizations Grow. What his argument basically is that companies don't grow in a straight line. They grow through different stable phases, and each phase produces a crisis that forces a change in how the company is managed and led. What you're in right now is what Greiner calls the leadership crisis, or the crisis of leadership. That is the moment where the founder can no longer hold everything together through personal oversight. It's not a failure of your culture or your company, but it's more of a transition. I think that makes me feel better or worse. I don't know because I'm a high performer, and I wanted to have this done already, but it's comforting to know that it's a classic situation. I think that both reactions are valid because, of course, the problem is real, but you're not doing anything wrong. You've just overgrown the face. Now I also want to push back on one of the words you used, bureaucracy, because I think bureaucracy gets kind of a bad rep. I gave it a bad rep, too. Someone called Max Weber, who was a German sociologist, he's actually the person who gave us the whole concept of bureaucracy in his book Economy and Society back in 1922. What he described was that bureaucracy is a rational legal system. It's a way of replacing the authority of one person with more predictable rule-based coordination. He kind of contrasted it with more charismatic authority, which I would think is kind of like what you have right now. That's how we survive, I guess. Yeah, and he kind of argumented that that kind of authority is fragile because it doesn't scale. It doesn't survive your absence, and it leaves the organization vulnerable every time you're sick or on vacation. So, when you say you don't want to be bureaucratic, I think what you're actually saying is that you don't want to be dysfunctional. And those are not the same thing. The structure you're hesitating to build is actually exactly what your company might need. I think that's an interesting approach. And I think, just to push back on that, because I think I agree with you. I don't want to be dysfunctional, but I also want to be agile. I think that's where I flinch again a little bit. Because what I see is that the startups and scale-ups who implement a very bureaucratic sort of, as you called it, a rational approach on this, a rational legal approach on this, they don't move as fast. Nothing shifts. And that's also expensive. That also costs the company. But I do agree with you that, yeah, it's dysfunctional more than bureaucratic. Yeah, and I see your point. But I think the problem is that you're kind of stuck in a binary of informal on the one side and rigid on the other side. And I don't think that bureaucracy has to be that black and white. Henry Mintzberg is another theorist who talked about, he wrote a book called The Structuring of Organizations. And he argued that structure should follow the coordination needs of the actual work and not just some idealized model of what a proper company should look like. So what he basically says is that you should be closer to something he calls professional bureaucracy, which is a coordination through shared expertise and shared experiences and not just standards. Maybe that's something where I can quickly jump in here because I'm not coming unprepared of course. I think the whole discussion between the two of you evolved a little bit about this topic of do we want a bureaucracy, do we not want a bureaucracy. It's all on that scale, right? And I do believe that there are many other ways to think about this topic and to solve your problems, Leo, because there are many companies that do it in another way. I've brought some examples. Should I maybe go for some? I think that would help me shed some light on what you're both saying because hearing it in practice makes me, yes, helps me. Cool. I would just start in there with the most radical one probably. Maybe Ray Dalio is a name that tells you something. Bridgewater Associates was one of the biggest hedge funds in the world. He founded this principle of radical transparency, also wrote a book about it. There are some odd things to it. I think like one of them is like every single meeting, every action, everything that was done within the company premises was being recorded and then other fellow employees could vote on how good of a job the other peers would do. They called it the dot collector. But here comes something which is I think very interesting for you as well. They did something which they called the decision by track record. So it's a hedge fund, right? They would record the decisions of every employer even if it was taken or not in the end. And then the decision that would have made the hedge fund the most money, that decision would be weighted in the future. Interesting. So I think that's a very interesting way to look at it. Yeah, so maybe there is something that could help you here. There should be livability. So based on their score and their track records, they sort of figure out who is the most reliable in terms of decision making in this company. But I feel like that mostly works within the framework of something like a hedge fund that has quantifiable outcomes, right? And for me to some extent, it sounds like a little bit of like an extreme bureaucracy. But it's more modern and more driven. I get that. Yeah, I think many people would react this way and maybe frame it as a bureaucracy. I have another standpoint on this because if you look at your company, I don't think the dysfunction that you have there is from the process itself. I think it comes from the politics, from the decisions, from the avoidance of decisions and from hierarchies, right? So it's more about systematizing the conflict, bringing it active onto the agenda of the company and make this disagreement transparent. Yeah, maybe I can press you on something because where does this sit on the spectrum in your view? Because what you are describing is every meeting recorded, every opinion logged, a formal tool ranking people's contributions and weighted decision rules. And to me, it sounds actually like an extreme amount of bureaucratic machinery. If the definition of bureaucracy is a rule-based documented systematic coordination, then Bridgewater is almost the purest expression of it I've ever heard. That's a very interesting standpoint that you have there. I would argue very strongly against that because I think bureaucracy in the end only works with a clear defined hierarchy and this hierarchy in the classic companies is equal to seniority, right? The longer you work there, the more you move yourself up, the more you can decide. This is what Weber was thinking about when he talked about it I think. But Bridgewater on the other hand is a company which is not based on seniority but purely on performance. You could call it a meritocracy if you want. So it's only like the intern can outvote the CEO if he made the right decisions. If his track record is behind him on that basically. I hear you but I still would argue that it's more of a gray zone because yes, you have replaced hierarchy of title but you have just replaced it with a hierarchy of decision making. And that's fine but you've done it by building more documentation, not less. So every thought is registered, every decision and every meeting is archived and I think that Weber would recognize that as a rule based system. So the content is different, yes, but it's still the same. Yes, interesting thought. I would say we might be talking more about the word bureaucracy here than actually the pain that Leo has. I think Leo, he wants to kill politics. He wants to make his rapidly growing organization more efficient, right? And stay agile as well. And stay agile, right Leo? And I think more than bureaucracy, I would call it this AI assisted meritocracy where decisions are done faster than before, more efficient, bringing the company to light. Yes, I think I can live with that framing and I'll just add one thing is that I think somewhere where we actually agree is the thing that both and I are pointing at is Leo is kind of an informal version that's kind of still like a rule system, an informal version of a rule system, right? So he's just an invisible one. So the rules... So you're basically saying whoever gets to me first wins. Yes, so whoever gets to you first wins, whoever speaks the loudest in the meeting and the moment you kind of admit that, the question stops being whether to have rules or not but whether to have invisible rules or clear rules. So what I'm also hearing between the lines is what you're both saying to me is that the informal way that I like it, that I prefer, it's not freedom. It's just another way of a rule but it's just an informal rule that you can't see and that makes it even harder to then quantify and build the organization on top of basically. Exactly, yes. Yes, I think I totally agree with that and I think there's some important thing to add here when I'm bringing up my examples in general. I'm not saying you should become a hedge fund and apply these rules one-to-one to your company. I'm saying what are the interesting elements here at Hedgewater that we can learn from Bridgewater and apply them to your organization so you can scale more rapidly, Leo? Yes, and I think that clarifies it for me because I'm not afraid of rules, right? I'm afraid of rules that outlive the reason they were written and in a face-paced environment, I think I have bad experience with that happening too often. Yes, and I think there are some certain elements that you can take away here. Which elements? Yes, so I think the most important is you can start with write down how decisions are taken. There is I think a lot of companies that I've seen if you ask the leaders, write down these decisions. Every leader in this company would write it differently. This is something that… And they would in my case as well, I think, yes. Yes, so in the case of Bridgewater, these are 600 pages of rule book. I think you can do it in 20. I'm not doing 600 at least. That's too big of a step for me. And also like I don't think you need the dot collector and peers like writing each other. But I think what you can do is think about for which decision would the person, which person in the company would have the best track record to answer to this and to make the best decision here because then the founder wouldn't be central. So you in this case would be central to that decision taking anymore. Yes. Yes, and this would result certainly in this disagreement. Make it a ritual in your company. Put it actively on the agenda. Have these fights within the company for this important decision. I really resonate with that one though. I get all the points but that one I think it's a clear thing that's easily implementable on Monday, right? Formalize disagreement not as a risk but as a ritual, as a resource, as a point of development, right? Right, right. Yes, and I think there is also a second example that you could really learn off. Another real life case? Another real life case, a company that you might know which is Netflix. I've heard about Netflix, yes, and chilling. So Netflix and chill, in the case of that company I would say not so much because basically they did the opposite of what Bridgewater did. Interesting. They didn't focus so much on the conflict. They focused on context as opposed to power and as opposed to control, right? They don't want to control their employees. They want to give them enough context so they can do the right decisions. So if you think for example, Leo, if you think about a process that went wrong, maybe a sales funnel or anything like that, then the first thing that entrepreneurs often do is applying more rules over here. And what Netflix would do and what Hastings would do is remove.